<h3>Long-term interest rates are at their highest level in 13 years and 9 months raising concerns about mortgage loans</h3>
Long-term interest rates are rising. The yield on newly issued 10-year government bonds, a key indicator, reached 1.25% in mid-January, marking the highest level in 13 years and 9 months.
The long era of deflation and ultra-low interest rates has ended, and we are now entering a period of rising inflation and interest rates. One concern is mortgage loans. There is anxiety that rising interest rates will cause repayment amounts to grow.
“Customers who are worried about interest rates rising have been consulting whether they should make early repayments on their mortgage loans,” 
Says Teruhiro Yagi, the representative of the comprehensive financial planning office Ever Side (Shinjuku, Tokyo).
“For some people, it&#8217;s a huge concern, but mortgage loans are favored debt, so it&#8217;s probably not necessary to repay them right away.” (Yagi)
He advises that for variable-rate mortgage loans, even if interest rates rise somewhat, the repayment amount won&#8217;t increase dramatically for about five years.
<figure id="attachment_409268" class="wp-caption alignnone" style="width: 4000px;" aria-describedby="caption-attachment-409268"><a href="#" data-ident_hash="bc1b6c75"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2025/01/247b10a34c23ceace2196dfa4bb55ea7.jpg" alt=""></a><figcaption id="caption-attachment-409268" class="wp-caption-text">According to a report by the Nikkei on January 15, more than 70% of the market is predicting an interest rate hike at the January meeting.</figcaption></figure>
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<h3>What about the decision to make early repayments? 1% mortgage interest &lt; 4%+ U.S. Treasury bond returns</h3>
By the way, what does it mean that a mortgage loan is favored debt?
The customer who consulted about making an early repayment had taken out a mortgage loan with a variable interest rate in the range of zero to a few percent from an online bank, and was considering making an early repayment of around 10 million yen of that loan.
Yagi-san calculated and showed the difference between the 1% mortgage interest and, for example, the return on U.S. Treasury bonds at 4% or more. In other words, it is far more beneficial to use the 10 million yen that can be repaid early for investment rather than hastily repaying a super-low-interest loan.
There are other factors, but the difference in interest rates, such as with U.S. Treasury bonds, is one key point in deciding whether early repayment should be prioritized.
&#8220;This difference is the key point, and excluding currency risk, the spread is now more than 3% annually.&#8221; (Yagi)
On the other hand, if the interest rate difference is for example, within 1%, then early repayment is worth considering.
Furthermore, as for the favored debt of a mortgage, there is the Group Credit Life Insurance (danshin) that borrowers are often forced to join when taking out the loan. If the borrower becomes unable to repay due to illness or death, the insurance company underwriting the group credit life insurance pays off the loan in full. The remaining family members can continue to live in the house.
In most cases, the insurance premiums for Group Credit Life Insurance are only slightly added to the loan interest rate. The advantage is that you can get significant coverage with low premiums.
There is a comparison site called Moge Check that ranks mortgage loan interest rates, incorporating the unique benefits of group credit life insurance for each financial institution.
For example, a certain online bank offers a mortgage loan interest rate of 0.3%, which rises to 0.35% when factoring in Group Credit Life Insurance. Yagi-san says, &#8220;Considering Group Credit Life Insurance, the interest rate is still low and it&#8217;s an important point to pay attention to.&#8221;
<h3>Domestic long-term interest rates are feeling like they will exceed 1.5% (expert) ⇒ Definitely entering a rising interest rate phase</h3>
That said, domestic long-term interest rates are rising. Regarding this situation, Masahiro Ichikawa, Chief Market Strategist at Sumitomo Mitsui DS Asset Management, explains:
“It is being pulled up by the high level of U.S. long-term interest rates. The U.S. Federal Reserve&#8217;s rate cuts have been delayed with the emergence of Trump. Unlike the U.S., Japan is heading in the direction of raising interest rates.”
He explains.
The U.S. economy has experienced inflation, and the central bank has repeatedly raised interest rates, but with inflation slowing down, they have begun lowering rates. With Trump&#8217;s victory in last fall&#8217;s U.S. presidential election, he has prioritized U.S.-centric policies. He advocates imposing high tariffs on imported goods to protect domestic industries, which has raised concerns about inflation.
On the other hand, Japan has shifted from a deflationary economy to an inflationary one, with wage increases also progressing. The Bank of Japan has shifted from ultra-low interest rate policies to focusing on raising rates, and it is exploring further rate hikes. The policy interest rate that the Bank of Japan adjusts in the financial market, the unsecured overnight call rate, is currently targeted at about 0.25%.
Regarding the Bank of Japan&#8217;s monetary policy and future domestic interest rates, Ichikawa says:
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<div data-friday-nextpage-lead="Ability to repay&quot; rather than &quot;interest rates&quot;?"></div>
“This year, I expect the Bank of Japan to raise interest rates by 0.25% each spring and summer. Domestic long-term interest rates will likely follow this trend. I predict the yield on 10-year government bonds will rise to around 1.4% this year,” says Ichikawa.
The Bank of Japan&#8217;s additional rate hikes may continue with 0.25% increases in the next year and the year after. As a result, the policy interest rate will likely reach the lower bound of the neutral interest rate, which is neither accommodative nor tightening for the economy, around the 1% range. Ichikawa predicts that domestic long-term interest rates will feel like they will exceed 1.5%.
On the other hand, Trump&#8217;s tariffs on the U.S. will impose more than 60% on China and a maximum of 20% on other countries.
“These tariffs will contribute to rising domestic prices and interest rates in the U.S., but it is seen as quite difficult to actually implement them. For example, there may be high tariffs, such as increasing the current 20% tariff on China to 40%. China may remove itself from the U.S. supply chain (the network for sourcing raw materials, parts, and distribution) and respond more strictly.
However, they will likely use the threat of high tariffs on allied countries as leverage for negotiations, but in reality, they probably won’t implement them,” says Ichikawa.
<figure id="attachment_409269" class="wp-caption alignnone" style="width: 640px;" aria-describedby="caption-attachment-409269"><a href="#" data-ident_hash="3b86211d"><img src="https://res.cloudinary.com/fridaydigital/image/private/t_article_image/wpmedia/2025/01/551dd422576d787bfe25befb81894877.jpg" alt=""></a><figcaption id="caption-attachment-409269" class="wp-caption-text">&#8220;Is it better to make a prepayment?&#8221;</figcaption></figure>
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<h3> Ability to repay rather than interest rate</h3>
The era of domestic interest rates not rising is over, but if the increase is mild, it might not be necessary to overly worry about the rise in mortgage rates. Rather, in the face of inflation and rising living costs, it is better to calmly reassess repayment ability.
Financial planner Aya Furouchi says,
&#8220;While it&#8217;s obviously good to reduce the total amount repaid for a mortgage, it&#8217;s impossible to predict it perfectly. Rather, what is important is being able to foresee the repayment amount and be confident that it can be paid off properly.&#8221;
When taking out a mortgage, it&#8217;s generally advised to choose a fixed rate to avoid the risk of increased burdens during an interest rate hike, and a variable rate is considered advantageous during a rate decrease. Currently, we are in an interest rate increase phase.
&#8220;Fixed-rate mortgages may feel expensive, but you can think of the unchanging amount as an insurance fee. When extra funds are available, making early repayments can reduce the actual interest paid.
With a variable rate, early repayments and other measures are necessary in the case of an interest rate rise, and the risk increases for those who cannot respond,&#8221; Furouchi adds.
Many people who have already taken out a mortgage are likely to have a &#8220;variable rate,&#8221; so interest rate trends are of concern.
For example, let’s say you took out a mortgage of 40 million yen for 35 years. With an interest rate of 0.5%, the monthly repayment is about 103,800 yen. If the interest rate rises by 2% to 2.5% after 10 years, the monthly repayment would rise to about 139,000 yen. If an increase of over 30,000 yen per month is difficult to handle, making an early repayment of 5 million yen would bring the monthly repayment down to around 108,500 yen, almost the same as before.
Based on this calculation, Furouchi says,
&#8220;To avoid changing your lifestyle, it’s clear that you need to be able to repay around 5 million yen immediately.&#8221;
Furouchi says.
<h3>Be cautious of Pair Loans</h3>
Domestic housing prices have skyrocketed, and many people are forced to take out large mortgages. When taking out a mortgage, there is a common guideline that the loan should not exceed a certain multiple of annual income. However, as mentioned by Yagi,
&#8220;You shouldn&#8217;t decide the loan based solely on annual income. It also depends on your lifestyle.&#8221;
In this case, seeking advice from a financial planner (FP) or another third-party advisor might be helpful.
Yagi particularly points out that whether a person is single, dual-income, or has children and a certain educational plan significantly affects income and living costs. The worst scenario is when a couple takes out a pair loan but the wife quits her job, leaving the husband alone to bear the repayments. According to Yagi, some people end up having to sell their homes because they can&#8217;t manage the repayments.
Yagi mentions that housing buyers sometimes seek a second opinion.
&#8220;For example, some people are told by real estate companies that they can take out a loan up to 8.5 times their annual income, and they borrow up to the limit of their repayment capacity.
With the possibility of rising interest rates in the future, there could be a surge in early repayments. More than half of the people who have listened to the real estate company&#8217;s advice feel that it would be better to reduce the loan amount a bit.&#8221; (Yagi)
Since interest rates are rising, when taking out a mortgage, it&#8217;s important to consider the potential pressure of rising living costs due to inflation. It&#8217;s a good idea to take into account a second opinion from a third party and plan the mortgage with future lifestyle changes in mind.

 After working as an analyst at a U.S. securities firm, Mr. Asai has been reporting and writing for Toyo Keizai Inc. and other domestic publishers and for Bloomberg and other U.S. news agencies for more than 30 years.

 Hideki Asai

 Long-term interest rates are rising. The long period of deflationary economy and ultra-low interest rates is over, and we are entering an era of inflation and higher interest rates. One of the main concerns is the "mortgage". There is a concern that the amount of repayment will increase due to rising interest rates. We ask an expert.

Expert Mortgage Strategies for Rising Interest Rates

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